Sunday, February 19, 2006

Models that predict climate change or energy supplies far into the future are routinely trotted out to explain either that we need to act urgently or that there is nothing to worry about. Why should this be so? Aren't models supposed to tell us the odds of a particular outcome and aren't those odds calculable by any objective observer? The answer is that it depends on what you model and how complete your information is.

For example, the range of results from the roll of a single die is known in advance, i.e., integers one through six inclusive. The result can never be seven or 20 or 0. With this kind of simple system, where all the possible results are known in advance, any guess about any set of rolls of the die are essentially decisions made under risk. But, with almost all real world systems, we cannot know all the possible results in advance. When we run a climate model or a model concerning energy supplies, we are modeling aspects of the world for which many of the variables are unknown (especially those relating to the future) and for which many of the exact relationships of the known variables are not completely understood. If we make policy decisions based on such models, we are making decisions under uncertainty. In short, we do not know anything like the precise odds of our models being "right." They are more scenarios than "results."

It is what we don't know that can hurt us according the Taleb. Taleb is a hedge fund manager and author of an excellent layman's guide to risk entitled "Fooled by Randomness." He skewers Wall Street pitchmen and analysts for their statistical sloppiness and their pretense that risk in the markets can be easily quantified. He points out that because all possible outcomes of any market or investment cannot be known, all investments are made under uncertainty. Wall Street, however, has long considered markets to be rational and well-behaved and therefore amenable to standard bell curve analysis.

Taleb begs to differ. He believes hidden dangers lie in wait that cannot be anticipated or guarded against in the usual ways. He refers to one type of danger as the "black swan." The idea, borrowed from philosopher David Hume, is that no number of observations of white swans can prove that all swans are white. In other words, no number of observations of the past can prove what the future will be like. (In philosophy, this is known as the problem of induction.) In financial markets, Taleb says, financial models act as if "black swan events," that is, completely unexpected, major market moving events, are very, very rare. They are not so rare as Wall Street assumes, he claims, and they make investing much more risky than it appears.

How does this apply to climate models or models of future energy supplies? These models are very much like the incomplete financial models. In fact, both types of models must take into account economic information. Like their counterparts, these energy and climate models assume that patterns discovered in the past can be projected into the future confidently. In practice, few climate scientists will claim that their models provide accurate predictions, only possible scenarios. Unfortunately, many energy analysts, both those who are worried about a nearby peak in world oil production and those who say we have plenty of oil, often portray their models as accurate predictors. When the predicted date of a peak passes without incident, the model is somehow "discredited." But such models are only good for making decisions under uncertainty. There is no clearly known range of possibilities to plug in. Much of the data about future conditions is just conjecture.

Does that mean such models are useless? Not at all. But we must interpret them carefully. Because they are replicas, they do not encompass every possibility. Some possibilities that are unknown may arrive unannounced and result in both positive or negative surprises. The cornucopians are particularly fond of citing how the marketplace and technology have always provided whatever we need in terms of energy and other resources to overcome any presumed environmental limit. In "Fooled by Randomness" Taleb observes, "it does not matter how frequently something succeeds if failure is too costly to bear." The failure to have alternatives to oil in the wake of a nearby oil peak may indeed be "too costly to bear." Cornucopian prognosticators are essentially admitting this by always citing a date far into the future when oil production will peak. The implied message: "We have plenty of time to prepare...but, if I'm wrong, we're screwed."

While those who fear we are headed for major energy shortages or a climate catastrophe in the near future may be premature, they actually offer the kind of advice that Taleb might: "Since the consequences could be so extreme, let's prepare now."

Since no models for climate or energy can possibly be expected to make precise predictions, we should use them to inform us in general terms about what we might face. Taleb says, "In other words, one need not actually compute the alternative histories [or futures] so much as assess their attributes." (Italics are mine.)

And, if one of those alternative futures is the collapse of civilization as we know it, perhaps we should not concern ourselves so much with discovering the precise day it will happen. Perhaps we should take out some insurance now--just in case.

4 comments:

The operational significance of probabilistic knowledge is the heart of science. Differing degrees of reliability or certainty does not mean that all knowledge or information is equally uncertain. As astrophysicist Steven Weinberg has written, "Three cheers for induction." Dr. Rignot's recent data and inferences concerning the accelerating melting of the Greenland ice sheet are probably among the most important predictive probabilistic claims ever made.

Dr. Rignot has looked at satellite pictures and has forgotten the basics:Add snow and ice to the headsnowfields of a glacier,then in a few years, watch the terminus starts to move more rapidly. More basic physics: If warming continues, more evaporation, more moisture and snow, glaciers grow and sea level falls. All claims should base on all-inclusive facts, not limited speculations.

Predicting the peak in oil production is, according to some, moot. December 16th was the (latest) peak. The Earth has been producing less since then. Will it tick up? maybe... but we can't say that the peak is in the future unless we are continually producing more today than yesterday, last week, and last year. We aren't.